Essays on S- Term Paper: Case Study Of A Financial/Managerial Accounting Problem Term Paper

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(Being recognition of depreciation expense for freehold buildings)Dr Depreciation of Fixtures expense account64,000Cr Accumulated depreciation Fixtures Account64,000(Being recognition of depreciation expense for Fixtures) Provision for doubtful debtsDebtor balance330,000.00Less Bad Debts(10,000.00)Balance320,000.00Provision at 5%16,000.00Decrease in provision for bad debts from 18,000 to 16000 indicates a 2000 reduction therefore adding to the income gross income of Wamu Traders limited. Reduction in the provision for bad debts is a gain to Wamu Traders LimitedPrepaid establishment expensesThis will affect both the income statement and balance sheet reducing expenses and increasing asset by the same figure. Dr Prepaid Establishment expense account4,000Cr Establishment expense Account4,000(Being recognition of Prepaid Establishment expenses)Accrued Administration expensesThis will affect both the income statement and balance sheet increasing expenses and decreasing asset by the same figure. Dr.

Administration expense account7,000Cr. Accrued Administration expense Account7,000(Being recognition of Accrued Administration expenses)Interest on LoanThis is based on the agreed rate of 6% and is as follows6% * 100,000 = 6,000This will form part of the accruals in the current financial year since it is paid a month after the closure of the financial year hence indicated as follows in the journal below; Dr Loan interest expense account6,000Cr Accrued Loan interest expense Account6,000(Being recognition of Accrued loan interest expenses)Other Adjustments; This will include the dividends payable to the preference shareholders and ordinary shareholders calculation done after calculation of net profit.

Other calculations Income statement Wamu Traders LimitedIncome StatementFor the Year ending 30th September 2000$$Sales 4,800,000.00 Less: Cost of Goods Sold 4,000,000.00 Add Discounts Received 13,000.00 Add Decrease in Provision for Bad debts 2,000.00 0 - 3,985,000.00 GROSS PROFIT 815,000.00 Less Other ExpensesLoan Interest 6,000.00 Bad Debts 14,000.00 Discount allowed 5,000.00 Depreciation Buildings 10,000.00 Depreciation of Fixtures and fittings 64,000.00 Establishment expenses 126,000.00 Administration expenses 63,000.00 Selling and distribution expenses 167,000.00 - 455,000.00 NET PROFIT 360,000.00 Less Dividends: Preference 8,000.00 Ordinary 60,000.00 68,000.00 Retained profit for the year 292,000.00 Retained profit B/f 362,000.00 Retained profit C/f 654,000.00 Balance sheetWamu Traders LimitedBalance SheetAs at 30th September 2000ASSETS$$$Current AssetsBank overdraft (25,000.00)Trade debtors 320,000.00 Less Provision for Doubtful Debts (16,000.00)Stock 560,000.00 Prepaid establishment expenses 4,000.00 0 - 843,000.00 Non-current AssetsFreehold Buildings 500,000.00 Less Accumulated Depreciation Building (60,000.00)Fixtures and fittings 640,000.00 Less Accumulated Depreciation Fixtures and fittings (320,000.00) 760,000.00 Goodwill 160,000.00 TOTAL ASSETS 1,763,000.00 LESS LIABILITIESCurrent LiabilitiesTrade creditors 148,000.00 Loan Interest payable 6,000.00 Accruals 7,000.00 Dividend payable 68,000.00 - 229,000.00 Non-current Liabilities6% loan stock 100,000.00 100,000.00 TOTAL LIABILITIES 329,000.00 NET ASSETS 1,434,000.00 Share Capital and Capital ReservesOrdinary shares of Sh. 20 each.

Fully paid 600,000.00 8% preference shares Sh. 20 each. Fully paid 100,000.00 Share premium account 80,000.00 Retained profit 654,000.00 1,434,000.00 ConclusionFinancial reporting requires the accountant to ensure that financial transactions are accurately recorded in the period to which they relate so that matching of revenues and expenses is achieved consequently ensuring that accurate profitability measure is achieved.

Wamu Traders need for accurate statements should not be clouded therefore in the cash basis concepts where inflows and outflows of cash and cash equivalents might be used as a measure of profitability. ReferencesFabozzi, F., & Peterson, P., 2003. Financial management and analysis. New York: John Wiley and Sons. Helfert, E., 2001. Financial analysis: tools and techniques: a guide for managers. New York: McGraw-Hill.

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